Australia’s ongoing drought impacts global markets

Three years of drought Down Under means stronger Canadian export markets for wheat,canola and barley,especially in Asia.

There’s a definite kinship between Canada and Australia. Both are Commonwealth nations, they share a colonial past, not to mention a fairly large tourist exchange that sees many Canadians sunning themselves on Australian beaches, while Australians gravitate to Canadian ski resorts. We’re family. And yet, as with many families, there are rivalries.

“If you look at any report from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and look at the major crops the country produces, it’s basically everything we grow,” says Bruce Burnett, director of markets and weather information with Glacier Farm Media. “That makes Australia a competitor.”

Canada and Australia grow wheat, barley, pulses, canola and winter cereals, just like many other nations including Russia and the U.S., but what makes the two countries so competitive is the similarities in the crop varieties and types grown, explains Burnett.

“Asia has been the engine of growth for agricultural exports and Canada and Australia are both well suited to supply those markets,” says Burnett. “We both produce the same things and are trying to sell them into the same markets. This is why Australia is an important place to monitor.”

THE IMPACT OF DROUGHT

It’s hard to talk about Australia and not be reminded of the devastating wild fires that have plagued the continent over the last several months. “The fires won’t impact the markets much because the harvest had been mostly completed when they started,” says Burnett, adding that many agricultural regions were spared from the flames.

But the fires are a frightening symptom of prolonged drought in Australia and one that has implications not only for that country, but ours as well. “This is the third year in a row for drought in eastern growing areas, but this year it’s also hit the western areas,” he says.

Burnett explains that eastern growing regions produce more grain and oilseeds than in Western Australia, but a large and thriving livestock industry means most of it is used by the domestic market, and three years of drought have had a deep impact on grain supplies there.

Western Australia, on the other hand, is sparsely populated and doesn’t have a large livestock feeding industry, making it the heart of the nation’s grain export industry. Indeed, according to Australia’s Grains Research and Development Corporation, 85 per cent of the region’s grain production, including wheat, barley and canola, is shipped overseas.

Drought in Western Australia means that the nation as a whole needs to import more wheat. “The magnitude of this is evident when you look at Canadian Grain Commission sales figures,” says Burnett. “As of October this year, Australia is our seventh largest wheat customer, and as far as I can determine, it’s never imported wheat from Canada before.”

WINDOWS OF OPPORTUNITY

If a rising tide lifts all boats, it follows that an ebbing tide lowers them, too. This is definitely the case with global markets. In Australia it’s drought; in Canada it’s terrible harvest conditions — both of which have resulted in lower overall wheat quality and depressed prices.

“They’re suffering and we’re suffering,” says Burnett. “The difference in Canada is that we have volume on our side, so we can reliably supply markets, or find markets for the quality that we have to sell. That does provide an opportunity for us in terms of wheat, canola and barley.”

Geography helps, too. Australia’s in the southern hemisphere, so harvest starts in late October,” says Burnett. “They start harvesting just as we’re wrapping up and that gives us an advantage in Asian markets because our new-crop wheat and new-crop barley come off before theirs does, so we have a window of opportunity there.”

WHAT TO EXPECT

What has Burnett scratching his head is what’s happening with prices. Since the fall, most prognosticators have lowered their production forecasts on virtually every Australian commodity. ABARES, for example, was projecting a 19.1 million tonne Australian wheat crop on September 1, 2019. By November, it was dropped to just over 15 million tonnes. Similarly, the U.S. Department of Agriculture dropped its Australian wheat outlook from 19 million tonnes in October to 16 million in December.

Keep in mind that Australia and Canada are producing pretty much the same crops, so the drought Down Under and the tough harvest conditions here, should impact premium grain markets but, so far, have not.

“Wheat prices, especially spring wheat prices, are lower overall even for high quality wheat,” says Burnett. “It’s very odd that the higher quality wheat market remains in a depressed state.”

He strongly believes that this will change. “With the combination of the drought, and other market factors, the high quality wheat price should see some appreciation,” he says.

Going into 2020, Burnett suggests keeping an eye on planting intentions for the North American crop. So far, he’s seeing signs that spring wheat acreage will be lower, while canola, pulse and durum acres should increase. FF